0701 andean latam

ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 13 Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Equity Research

Alonso Aramburu

New York – BTG Pactual US Capital LLC

[email protected]

+1 646 924 2471

Cesar Perez-Novoa

Chile - BTG Pactual

[email protected]

+562 2490 5012

Felipe Ucros

New York – BTG Pactual US Capital LLC

[email protected]

+1 646 924 2474

Juliana Aguilar

Colombia - BTG Pactual

[email protected]

+574 356 7413

January 5SIMTM (5 Stock Ideas for the Month)

Weaker tailwinds, but Andean economies should continue to outperform

2014 is starting off with two global trends that are likely to play out for a while: (i)

higher rates in the US and (ii) growth in China that is stable but weaker than in the

previous decade. For Andean countries (and most of Latam), these trends mean

slower GDP growth and further currency pressure, with the latter likely magnified by

monetary policies that are either looser than before (in Chile and Peru) or already

loose (in Colombia). Overall, GDP growth in the Andes should continue to outpace

Latam, but tailwinds are unlikely to be as strong as in recent years. In this scenario,

we favor companies with USD revenues, exporters, and commodity buyers.

Chile: Valuation is limiting downside; waiting for cabinet appointments

We are not ruling out a possible rebound in Chilean equities from a 4-year valuation

low, and market-friendly cabinet appointees could be a trigger. We also think that for

some sectors, such as banks, margin tailwinds will lead to good short-term earnings

momentum. However, we believe structural headwinds (higher wages, energy prices

and taxes) and a slower GDP expansion will keep earnings growth subdued in 2014.

A potentially weaker CLP adds downside to USD returns. Copec is still our only pick.

Peru: GDP regaining momentum; keeping Credicorp and Graña y Montero

After a period of deceleration, Peru’s GDP growth appears to be picking up again.

With several concessions granted in December and the approval to sell up to a 49%

stake in Peru’s state-owned oil company, the government is also mounting efforts to

boost business confidence and promote investment. We think this trend will continue

in the short term – US$7.0bn+ of projects are scheduled to be awarded in 1Q14. We

also expect the PEN to be more defensive than neighboring currencies due to active

CB intervention. Credicorp and Graña y Montero remain our top names.

Colombia: Construction driving GDP growth; Adding Avianca and Cem. Argos

Large caps Ecopetrol and Bancolombia have weighed on the market in recent

weeks, despite better-than-expected GDP figures. While growth has been highly

concentrated in construction, we think economic momentum provides a positive

setting for earnings in 2014. Though we still like Davivienda and Nutresa’s earnings

dynamics, we are replacing them with Avianca and Cementos Argos, as we see

better operating trends and more visible catalysts for them in 2014.

Table 1: Andean/Southern Cone 5SIMTM Portfolio for January 2014

Source: BTG Pactual. Cementos Argos multiples are adjusted for portfolio holdings.

Bank

Rating TickerWeight

(%)

3M ADTV

(US$ mn)

Market Cap

(US$ mn)

P/E

2014E

EV/EBITDA

2014E

Avianca Holdings Buy AVH US 20% $17.8 $1,933 7.0x 6.3x

Cementos Argos Buy CEMARGOS CB 20% $3.4 $6,912 26.6x 9.0x

Copec Buy COPEC CI 20% $8.3 $19,224 18.5x 12.0x

Credicorp Buy BAP US 20% $45.7 $10,587 12.3x NA

Graña y Montero Buy GRAM US 20% $1.8 $2,370 18.8x 7.7x

Andean Region

Strategy

SectorNote

07 January 2014

The Andean/Southern Cone 5SIMTM

The Andean/Southern Cone 5SIMTM 07 January 2014 page 2

Portfolio Strategy

2013 was a weak year for Latam equities, due largely to lower commodity prices,

economic deceleration, and weaker currencies. Those countries with the greatest

exposure to commodities – Peru, Brazil and Chile – were the most affected. Though

Colombia was also in negative territory, it outperformed its Andean peers, as it was

the only country with accelerating GDP growth in 2013. To a lesser degree, we

believe Colombia’s closer ties to the US (~35% of exports) also played a role in its

relative performance. The benefit of US exposure and a more stable currency was

evident in Mexico, the best Latam market in 2013 (though it underperformed on the

GDP front).

In 2014, we expect many of these dynamics to continue. Some of the tailwinds from

the last ten years (currencies, commodity prices, and rates) are unlikely to blow as

strongly in 2014 and may even become headwinds in some cases. We believe these

conditions will continue to merit attention when evaluating both bottom-up dynamics

for stock selection and top-down trends for country allocation. GDP growth in the

Andes should continue to outpace Latam overall, but trends differ from country to

country.

After a period of deceleration, especially noticeable in 3Q13, Peru’s GDP growth

appears to be picking up speed. 4Q13 GDP growth should top 5.5% after growing

4.4% in 3Q13, and the country is estimated to grow the fastest in the region in 2014

(we are modeling for 5.3%). With several concessions granted in December, a few

more to follow in 1Q14 (including the US$6.5bn Line 2 for the Metro), and the

approval to sell up to a 49% stake in Peru’s state-owned oil company, the

government is also mounting efforts to boost business confidence and promote

investment.

In Colombia, GDP has posted better-than-expected growth for two consecutive

quarters and is starting 2014 with the strongest economic momentum among the

three countries. And though much of this momentum is due to robust construction

activity (up 21% y/y in 3Q13), we think the setting is favorable for earnings across

domestic demand industries in 2014.

In Chile, the latest data (including the lower-than-expected 2.8% Imacec print for

November) point to a continued economic deceleration in 4Q13, with GDP growth

sinking below the 4% floor seen in 2Q13 and 3Q13. We expect Chile to grow more

slowly (we forecast 3.8%) than Colombia or Peru in 2014 and think its economic

momentum is also the weakest of the three.

By sector, we think a spate of infrastructure projects announcements will benefit

cement and construction names in Peru and Colombia in 2014. An improving

operating environment should also boost profitability for banks in Peru, due to a

greater focus on efficiency and risk, while Chilean banks should benefit from lower

rates and higher expected inflation.

From a valuation perspective, both Chile and Colombia (ex-oil) are the most attractive

markets relative to historical multiples. Both are trading at 3-year lows, but we think

Colombia is better positioned to re-rate in light of the better macro momentum,


potentially favorable political news (signing of peace agreement and reelection of

Santos), and closer ties to the US. On an absolute basis, all three markets are trading

at very similar levels, which also explains why we favor Colombia and Peru relative to

Chile for their better economic momentum. We also like Peru from a USD-return

perspective, since we think that in a scenario of ongoing pressure for Latam

currencies, the PEN is likely to outperform on the back of the likely active intervention

of the Central Bank.

Chart 1: Chile 5-Year Historical Forward P/E

Source: BTG Pactual and Bloomberg

Chart 2: Colombia 5-Year Historical Forward P/E (ex-oil)

Source: BTG Pactual and Bloomberg. Adjusted for GEA portfolio holdings

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Chart 3: Peru 5-Year Historical Forward P/E (ex-mining)


Our portfolio features two changes this month, both in Colombia, as we are replacing

Banco Davivienda and Nutresa with Avianca Holdings and Cementos Argos,

while Credicorp and Graña y Montero remain our preferred names in Peru. In Chile,

we still have only one pick – Empresas Copec – reflecting our less favorable view of

the market despite a historically low valuation.

In December, we added coverage of Avianca Holdings (Renato Mimica: Buy), taking

our coverage in Chile, Peru and Colombia to 54 companies.

Chile: Post-Election Update

We are maintaining our relative underweight stance on Chile, as we are awaiting a

clearer picture of the risks likely to be associated with the implementation of

President-elect Michelle Bachelet’s social agenda and the implications for taxes,

specific sectors, and state involvement in strategic areas, such as healthcare and

pensions. Granted, the business and political communities have broadly discussed

the proposed reforms, but we would like to see the technical aspects of

implementation, especially those associated with taxation. Currently, the market is

factoring into financial assets a proposed increase in the corporate tax rate to 25% in

annual increments of 125bps, but it is not pricing in potential sector-specific taxes.

Between now and March 10, 2014 (when the Piñera administration completes its 4-

year term), we expect Chile’s domestic financial market to be guided by (i) any

agenda details that add to the 200 pages Ms. Bachelet has published so far, and (ii)

her cabinet appointments. In our opinion, her appointments will be a crucial factor for

investors, with the key name being Finance Minister. We believe Bachelet’s roster will

most likely be released in mid-January.

Several names have surfaced in the press. Perhaps the most likely candidate for

Finance Minister is Alberto Arenas, 48, a Pittsburgh University PhD and politician

who served as budget director at the Finance Ministry in Bachelet’s 2006-10

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administration. He is also one of her most trusted advisors and is seen as the public

face of her economic program. Other names mentioned in the media include former

budget director Mario Marcel, former Lagos-era Finance Minister Nicolas

Eyzaguirre, and former Central Bank President Jose de Gregorio. The latter two are

seen as moderate and thus in our view likely to have a calming effect on the capital

markets. Jose Goni, a former Defense Minister in Bachelet’s first administration, is

seen as a potential candidate for Foreign Minister; and for the Energy Ministry – a

critical post in light of Chile’s need for an urgent revamp of its energy policy – the

leading name is currently Eduardo Bitran.

We continue to assume, as a base case, that high-caliber professionals will be

appointed to the key economic and financial posts.

Our assessment is that the new administration has the power to relatively quickly

enact most of the reforms it has proposed so far (with the exception of changes to the

constitution, which we would not expect to start until 2H14), since Ms. Bachelet’s

Nueva Mayoría coalition has nearly four-sevenths of Congress and some

independent members may provide support. That said, she may frequently need the

support of right-of-center groups to get her legislation passed.

We expect her to avoid an aggressive approach, since she will have to deal with her

opposition for four years and any serious controversy might run the risk of a

legislative stalemate at some point in that time. We think success will require

moderation and savvy political skills – which might involve toning down some of her

proposals.

We believe her relationship with the private sector will also be a moderating influence:

she will inherit a more slowly growing economy, and most of her agenda requires

massive funding. We believe it is in her best interest to keep the private sector as a

dynamo behind investment: if the private sector senses more state supervision or

involvement, domestic investment might slow and put her ambitious program at risk.

And she will want to deliver on her promises – if she cannot, we would expect her to

have to govern with a low approval rating, which was in fact how she began her

previous term in 2006.

As a result, we expect her to work urgently but diplomatically to submit proposals to

Congress from Day One, possibly passing most of the key non-constitutional items in

her first 3 months. Regarding the approach her administration will take to the

constitutional changes she has put forward, we do not expect more details until after

she takes office. The market has voiced some concern about these factors, and

though we think it has currently priced in most of them, we do not rule out some

subsequent volatility in the next 3 months. At the same time, there is also the

possibility of such changes being shelved as too controversial, either temporarily or

more permanently.


Table 2: Chile, Colombia and Peru Coverage Universe, December 31, 2013

Source: BTG Pactual. Cementos Argos and Nutresa multiples are adjusted for portfolio holdings.

Bloomberg BTG Pactual Target Price Market Cap 3M ADTV

31-Dec-13 Ticker Rating Price (Listing FX) (US$ mn) (US$ mn) 2013E 2014E 2013E 2014E 2013E 2014E

BANKS

Banco Santander Chile BSAC US Neutral CLP $34.00 CLP $31.48 $11,700 $7.6 15.5x 12.3x 2.5x 2.3x 17.1% 19.5%

Bancolombia CIB US Neutral COP $33,080 COP $23,440 $10,348 $10.6 11.5x 8.5x 1.6x 1.4x 14.5% 17.7%

Credicorp BAP US Buy USD $161.00 USD $132.73 $10,587 $45.7 17.6x 12.3x 2.5x 2.1x 14.8% 19.3%

Banco Davivienda PFDAVVND CB Buy COP $30,100 COP $23,660 $5,443 $2.2 12.9x 9.8x 1.7x 1.5x 14.3% 16.6%

Corpbanca CORPBANC CI Buy USD $6.70 USD $5.75 $3,859 $6.8 13.3x 8.9x 1.4x 1.3x 11.5% 15.2%

IFS IFS PE Buy USD $34.00 USD $31.00 $2,902 $1.0 10.9x 10.6x 2.7x 2.4x 23.8% 23.8%

BANK AVERAGE $7,473 $12.3 13.6x 10.4x 2.1x 1.8x 16.0% 18.7%

1 2 3 4 5 6 7 8 9 10 11

Bloomberg BTG Pactual Target Price Market Cap 3M ADTV

31-Dec-13 Ticker Rating Price (Listing FX) (US$ mn) (US$ mn) 2013E 2014E 2013E 2014E

NON-BANK FINMNCIALS

Bolsa de Valores de Colombia BVC CB Neutral COP $26.0 COP $22.4 $217 $0.5 19.4x 20.1x 9.9x 9.0x

NON-FINMNCIALS

Aerospace and Transportation

LATAM Airlines LAN CI Restricted – USD $16.31 – $12.6 - - - -

Avianca Holdings AVH US Buy USD $23.00 USD $15.44 $1,933 $17.8 7.7x 7.0x 6.7x 6.3x

Average $1,933 $15.2 7.7x 7.0x 6.7x 6.3x

Basic Materials

Southern Copper SCCO US Buy USD $45.00 USD $28.71 $24,404 $51.6 10.8x 9.0x 6.8x 5.7x

Cerro Verde CVERDEC1 PE Neutral USD $29.60 USD $24.50 $8,576 $0.1 14.5x 13.3x 7.4x 7.2x

Sociedad Quimica y Minera SQM/B CI Buy USD $45.00 USD $25.88 $6,812 $18.8 12.7x 13.7x 8.4x 8.1x

Buenaventura BVN US Neutral USD $16.00 USD $11.22 $2,855 $26.7 9.2x 6.9x 9.8x 6.3x

Volcan VOLCABC1 PE Buy PEN $1.60 PEN $1.14 $1,524 $0.7 11.9x 13.5x 4.4x 4.6x

Minsur MINSURI1 PE Buy PEN $1.84 PEN $1.43 $1,474 $0.7 7.2x 6.7x 4.2x 3.6x

Milpo MILPOC1 PE Neutral PEN $3.80 PEN $2.11 $843 $0.2 15.0x 9.0x 4.8x 4.7x

El Brocal BROCALC1 PE Sell PEN $9.60 PEN $10.70 $427 $0.1 NM 16.4x 16.5x 5.6x

Average $5,864 $12.4 11.6x 11.1x 7.8x 5.7x

Conglomerates

Grupo Argos GRUPARG CB Neutral COP $24,700 COP $19,440 $7,914 $2.3 35.5x 17.2x 8.4x 7.0x

Construction, Infrastructure and Real Estate

Cementos Argos CEMARGOS CB Buy COP $10,900 COP $9,800 $6,912 $3.4 63.5x 26.6x 12.7x 9.0x

Graña y Montero GRAM US Buy USD $25.00 USD $21.23 $2,370 $1.8 22.2x 18.8x 8.2x 7.7x

Parque Arauco PARAUCO CI Buy CLP $1,500 CLP $990 $1,372 $2.8 13.4x 11.8x 13.7x 11.9x

Cementos Pacasmayo CPAC US Buy USD $15.30 USD $11.84 $1,378 $0.3 20.3x 17.7x 11.8x 10.8x

Average $3,008 $2.1 29.9x 18.7x 11.6x 9.8x

Energy

Ecopetrol EC US Neutral USD $50.00 USD $38.45 $79,047 $17.8 11.6x 14.5x 5.6x 6.2x

Pacific Rubiales PRE CN Buy CAD $31.10 CAD $18.34 $5,573 $32.4 18.5x 32.5x 3.7x 2.9x

Petrominerales PMG CN Neutral CAD $7.40 CAD $12.26 $975 $29.7 47.1x NM 3.9x 5.0x

GeoPark GPK LN Buy GBP $8.55 GBP $6.08 $438 $0.1 9.1x 10.7x 4.3x 4.2x

Canacol CNE CN Neutral CAD $7.00 CAD $7.13 $580 $1.9 NM 17.1x NM 7.0x

Average $17,322 $16.4 21.6x 18.7x 4.4x 5.1x

Food and Beverages

Nutresa NUTRESA CB Buy COP $30,800 COP $26,440 $6,305 $2.4 22.7x 20.2x 11.7x 9.6x

Embotelladora Andina ANDINMB CI Neutral CLP $3,200 CLP $2,888 $5,392 $1.3 24.6x 20.7x 12.3x 10.4x

Cia de Cervercerias Unidas CCU CI Buy CLP $8,250 CLP $6,870 $4,316 $11.2 18.8x 16.8x 8.4x 8.6x

Alicorp ALICORC1 PE Neutral PEN $9.70 PEN $9.10 $2,781 $0.7 28.6x 21.5x 13.3x 11.7x

Concha y Toro CONCHA CI Neutral CLP $1,000 CLP $935 $1,378 $1.2 21.4x 16.8x 16.1x 12.0x

Average $4,034 $3.4 23.2x 19.2x 12.4x 10.4x

Healthcare

CFR Pharmaceuticals CFR CI Buy CLP $160.0 CLP $130.0 $2,158 $1.9 21.0x 14.6x 14.1x 11.4x

Industrial

Enaex ENMEX CI Neutral CLP $6,440.0 CLP $5,500.0 $1,334 $0.1 14.1x 12.3x 9.6x 9.0x

Ferreycorp FERREYC1 PE Buy PEN $2.60 PEN $1.93 $652 $0.7 12.7x 8.3x 6.0x 5.1x

Average $993 $0.4 13.4x 10.3x 7.8x 7.0x

Pulp & Paper

Copec COPEC CI Buy CLP $9,046 CLP $7,499 $19,224 $8.3 20.7x 18.5x 12.2x 12.0x

Empresas CMPC CMPC CI Neutral CLP $1,725 CLP $1,519 $7,115 $4.3 27.1x 29.0x 10.5x 11.1x

Average $13,169 $6.3 23.9x 23.8x 11.3x 11.6x

Retail

S.A.C.I. Falabella FALAB CI Neutral CLP $6,000 CLP $5,098 $24,318 $12.7 25.2x 21.5x 16.2x 14.0x

Cencosud CENCOSUD CI Neutral CLP $2,225 CLP $2,089 $11,657 $8.3 29.0x 18.0x 10.5x 9.3x

Almacenes Exito EXITO CB Neutral COP $34,000 COP $30,000 $6,959 $2.9 31.0x 27.8x 12.8x 11.4x

InRetail INRETC1 PE Neutral USD $21.00 USD $15.90 $1,635 $0.3 47.6x 23.8x 12.1x 10.4x

Forus FORUS CI Buy CLP $3,445 CLP $2,810 $1,432 $1.2 20.7x 18.3x 14.8x 13.2x

La Polar NUEVAPOL CI Buy CLP $180 CLP $105 $207 $0.8 NM 10.5x NM 11.1x

Average $7,701 $4.4 30.7x 20.0x 13.3x 11.6x

Telcos & IT

Entel ENTEL CI Neutral CLP $11,000 CLP $7,886 $3,679 $4.8 14.8x 13.7x 4.4x 4.2x

Sonda SONDA CI Buy CLP $1,900 CLP $1,329 $2,283 $2.9 21.4x 18.7x 9.0x 8.0x

Average $2,981 $3.8 18.1x 16.2x 6.7x 6.1x

Utilities

Enersis ENERSIS CI Buy CLP $204 CLP $172 $16,606 $11.0 11.7x 11.0x 4.5x 4.4x

Endesa ENDESA CI Buy CLP $960 CLP $783 $12,673 $8.9 18.6x 15.5x 8.4x 7.5x

AES Gener AESGENER CI Neutral CLP $355 CLP $308 $4,898 $2.5 25.4x 19.9x 11.8x 11.6x

Colbun COLBUN CI Neutral CLP $155 CLP $127 $4,400 $1.6 28.4x 17.6x 12.7x 8.6x

Aguas Andinas AGUAS/A Buy CLP $358 CLP $346 $4,171 $3.2 15.0x 13.7x 10.4x 9.8x

Isagen ISAGEN CB Neutral COP $3,217 COP $3,250 $4,592 $2.0 20.1x 19.4x 16.3x 13.6x

Celsia CELSIA CB Neutral COP $6,600 COP $5,680 $2,118 $1.9 14.0x 13.4x 7.3x 7.2x

Inv. Aguas Metropolitanas IAM CI Buy CLP $988 CLP $942 $1,858 $1.1 13.9x 12.6x 6.1x 5.7x

E-CL ECL CI Buy CLP $1,145 CLP $799 $1,660 $1.9 20.3x 16.7x 8.2x 7.5x

Average $5,886 $3.8 18.6x 15.5x 9.5x 8.4x

NON-FINMNCIAL AVERAGE $6,765 $6.8 20.9x 16.3x 9.6x 8.3x

P/E P/BV ROE (%)

P/E EV/EBITDA


OUR PICKS FOR JANUARY 2014

Avianca Holdings (20%): Buy (Renato Mimica/Felipe Nussli). Our positive view is

based on (i) AVH’s leading position and track record in high-growth markets, (ii)

robust earnings momentum with an upward trend in profitability (we expect Q4 to be

another strong quarter); (iii) revenue power in the passenger segment and great

potential to grow the cargo and ancillary lines further; (iv) a focus on cost cuts and

fleet optimization, which should support a further expansion in profitability; and (v) a

very discounted valuation, trading at just over 7x P/E for 2014.

Credicorp (20%): Buy (Alonso Aramburu/Felipe Ucros). Credicorp’s earnings have

been very volatile in the last 12 months, with heavy FX losses, rapid growth in

expenses, and NPLs that have spiked in two different segments (credit cards and

SME). We expect the company to adopt a more controlled approach to growth next

year, where risk and efficiency will be more relevant components of the bank’s growth

strategy. Under this new focus, we think earnings visibility will become clearer. We

think the upside risk to profitability comes mainly from efficiency gains. Management

believes the efficiency ratio at BCP can improve from ~50% to the mid-40’s (we

forecast efficiency improving 200bps in the next 2 years), but the goal is to control

costs at the whole group, not just at the bank.

Copec (20%): Buy (Cesar Perez-Novoa/Alex Sadzawka). We expect rapid growth in

both its forest products and fuel distribution divisions. In forest products, we expect

stronger performance in 1Q14 with: the startup of the Montes del Plata pulp mill in

Uruguay; the continued ramp-up of its panels mills (a volume driver in 3Q); and the

Nueva Aldea plywood facility. In Copec’s fuels business, we are already seeing the

expected high volume growth both in Chile (including Abastible and Metrogas) and,

particularly, in Colombia – where we expect high-single-digit volume growth to be

sustained. We believe the market is beginning to price in the potential for growth we

flagged in October, but that there is still some distance to go.

Graña y Montero (20%): Buy (Dario Valdizan/Cesar Perez-Novoa). Investor

perception of GRAM depends mainly on the economy of Peru, and, to a lesser extent,

of Chile, in addition to GRAM’s ability to win projects and execute them well. Peru’s

government has bet on its ability to successfully tender projects totaling US$10bn

over that period. GRAM’s capital increase gives it the firepower for the forthcoming

concession tender rounds in Peru. We see as potential catalysts for the shares: (i)

GRAM's ability to win the project for Lima's Metro Line 2 (US$6.5bn) and (iii) the

finalization of the licenses for Cuartel San Martin. We also see two general value

perception drivers: (a) synergies from the new acquisition in Chile; and (b) an

improvement in margins from contract structure adjustments.

Cementos Argos (20%): Buy (Felipe Ucros/Gordon Lee). Our view of the stock is

mainly driven by positive and resilient leading permit data in the construction sector in

Colombia, which leads us to believe cement consumption will continue its growth

trend well into 2014. In addition, we see a continuation of the housing rebound in the

US, a drive for operational efficiency at the company and a relatively attractive

valuation. Possible catalysts in the near term include i) the initiation of infrastructure

concession awards as early as February, ii) a confirmation of Mayor Petro’s


destitution, iii) a possible reversal of the new POT in Bogota and iv) a deployment of

M&A cash raised in the recent offering. However, the name is not risk-free. The

Panama Canal is nearing a possible halt in construction as concessionaires and the

Panamanian government resolve a cost overrun dispute and Bogota residential

permit numbers have been disappointing since the POT was instituted.

Table 3: Andean/Southern Cone 5SIMTM Portfolio for January 2014

Source: BTG Pactual. Cementos Argos multiples are adjusted for portfolio holdings.

Weight

(%)Rating Ticker

3M ADTV

(US$ mn)

Market

Cap (US$

mn)

P/E

2013E

P/E

2014E

EV/EBITDA

2013E

EV/EBITDA

2014E

P/BV

2013E

P/BV

2014E

Avianca Holdings 20% Buy AVH US $17.8 $1,933 7.7x 7.0x 6.7x 6.3x NA NA

Cementos Argos 20% Buy CEMARGOS CB $3.4 $6,912 63.5x 26.6x 12.7x 9.0x NA NA

Copec 20% Buy COPEC CI $8.3 $19,224 20.7x 18.5x 12.2x 12.0x NA NA

Credicorp 20% Buy BAP US $45.7 $10,587 17.6x 12.3x NA NA 2.5x 2.1x

Graña y Montero 20% Buy GRAM US $1.8 $2,370 22.2x 18.8x 8.2x 7.7x NA NA


December Portfolio Performance

In December, our 5 SIMTM portfolio was up 2.8%, outperforming both the Liquidity

Weighted Index (+2.3%) and the MSCI Rebalanced Index (-0.8%) as shown in the

chart below.

Chart 4: Andean/Southern Cone 5SIMTM – December 2013 Relative Performance

Source: BTG Pactual and Bloomberg. MSCI Rebalanced Index = MSCI LatAm stripped of Brazilian and Mexican names and reweighted proportionally. Liquidity Weighted Index = volume-weighted index of all our Peru, Colombia and Chile coverage plus all other stocks in those markets with an ADTV above US$1.0mn.

Chart 5: Andean/Southern Cone 5SIMTM – December 2013 Portfolio Performance


96.0

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MSCI Rebal Liq Weight Index 5SIM Andean

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Davivienda Copec Nutresa Credicorp Graña y Montero


Inception to Date (March 6th

2013) Portfolio Performance

Since inception, our 5 SIMTM

portfolio is down 11.8%, outperforming both the Liquidity

Weighted Index (-27.6%) and the MSCI Rebalanced Index (-26.2%) as shown in the

chart below.

Chart 6: Andean/Southern Cone 5SIMTM – Inception to Date Relative Performance


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MSCI Rebal Liq Weight Index 5SIM Andean


A Recap of December

In Chile, both the MSCI and the IPSA had a negative performance for the second

consecutive month, decreasing 1.8% and 1.1%, respectively. Telecom (-4.2%),

Beverages (-3.6%) and Retailers (-2.8%) were the worst performing sectors, with La

Polar (-25.5%), Hites (-7.4%) and Andina (-7.3%) as the worst performing stocks.

Fishing (+7.4%) and Healthcare (+5.1%) were the best performing sectors, the latter

driven by Cruz Blanca’s outperformance (+27.6%) after the announcement that Bupa

Sanitas will launch a tender offer for up to 56% of Cruz Blanca at CLP$525/share.

Chart 7: Chile Stock Performance, December. 2013

Source: Bloomberg. Returns in USD

In Colombia, the MSCI dropped 2.4%, being the worst in the Andean Region, while

the local IGBC posted a 1.0% loss. Underperformance was mainly driven by

Ecopetrol (-5.9%), after the company announced its Capex for 2014, Pacific Rubiales

(-6.5%) and Bancolombia (-5.3%). Canacol (+43.9%) was the best performer in

December, thanks to positive data from its Leono-1 well, followed by ETB (+12.8%)

and ISA (+5.7%).

Chart 8: Colombia Stock Performance, December. 2013


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In Peru, both the MSCI (+5.2%) and the IGBVL (+3.7%) were the best performers of

Latam last month, recovering some of November’s losses. Growth was driven by

miners and internal demand driven names, with Cementos Pacasmayo (+8.7%),

Graña y Montero (+8.3%), Banco Continental (+6.4%), Alicorp (+5.3%), among

others, outperforming last month; Southern Copper (+14.4%) was the best performer.

On the negative side, Relapasa (-9.0%), Buenaventura (-4.9%) and Corp. Lindley (-

3.3%) were the worst performers in December.

Chart 9: Peru Stock Performance, December. 2013


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25% IGBVL: 3.7%


Required Disclosures

This report has been prepared by BTG Pactual US Capital LLC.

The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results.

BTG Pactual Rating

Definition Coverage *1 IB Services *2

Buy Expected total return 10% above the company’s sector average.

52% 48%

Neutral Expected total return between +10% and -10% the company’s sector average.

42% 44%

Sell Expected total return 10% below the company’s sector average.

6% 25%

1: Percentage of companies under coverage globally within the 12-month rating category.

2: Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.

Absolute return requirements

Besides the abovementioned relative return requirements, the listed absolute return requirements must be followed:

a) a Buy rated stock must have an expected total return above 15%

b) a Neutral rated stock can not have an expected total return below -5%

c) a stock with expected total return above 50% must be rated Buy

Analyst Certification

Each research analyst primarily responsible for the content of this investment research report, in whole or in part, certifies that:

(i) all of the views expressed accurately reflect his or her personal views about those securities or issuers, and such recommendations were elaborated independently, including in relation to BTG Pactual US or its affiliates, as the case may be;

(ii) no part of his or her compensation was, is, or will be, directly or indirectly, related to any specific recommendations or views contained herein or linked to the price of any of the securities discussed herein.

The research analyst responsible for this report is registered/qualified as a research analysts by FINRA.

It is possible that research analysts contributing to this report are employed by a non-US broker-dealer. In this case the analysts will not be registered/qualified as research analysts under FINRA rules and therefore will not be subject to the restrictions contained in the FINRA rules regarding communications with a subject company, public appearances, and financial interest in the securities of the subject company.

Part of the analyst compensation comes from the profits of BTG Pactual US or its affiliates as a whole and/or its affiliates and, consequently, revenues arisen from transactions held by BTG Pactual US or its affiliates.

Statement of Risk

We believe the key risks are additional competition and regulatory issues. In addition, there are potential risks inherent in

investing in emerging market countries. Potential emerging market related risks include, but are not limited to, the volatile nature

of the currency, regulatory and sociopolitical risk, and abrupt potential changes in the cost of capital and economic growth

outlook. Valuations can also be affected by "contagion" from developments in other emerging markets.

Company Disclosures

Company Name Reuters 12-mo rating Price Price date Avianca Holdings 1, 6, 9, 18, 20, 21, 22 AVH.N Buy US$16.00 7-1-2014 Cementos Argos 1, 2, 4, 6, 9, 18, 20, 22 N.A. Buy COP9,360.00 7-1-2014 COPEC 1, 2, 4, 6, 18, 19, 20, 21, 22 COPEC CI Buy CLP6,984.30 7-1-2014 Credicorp 18, 19, 20, 21, 22 N.A. Buy US$130.80 7-1-2014 Grana y Montero 1, 9, 18, 20, 22 1439641 Buy US$21.43 7-1-2014

1. Within the past 12 months, BTG Pactual US or its affiliates has received compensation for investment banking services from this company/entity.

2. BTG Pactual US or its affiliates expect to receive or intend to seek compensation for investment banking services and/or products and services other than investment services from this company/entity within the next three months.

4. This company/entity is, or within the past 12 months has been, a client of BTG Pactual US or its affiliates, and investment banking services are being, or have been, provided.

6. BTG Pactual US and/or its affiliates receive compensation for any services rendered or presents any commercial relationships with this company, entity or person, entities or funds which represents the same interest of this company/entity.

9. BTG Pactual US or its affiliates has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates or subsidiaries within the past 12 months.

18. As of the end of the month immediately preceding the date of publication of this report, neither BTG Pactual US nor its affiliates or subsidiaries beneficially owned 1% or more of a class of this company`s common equity securities.

19. Neither BTG Pactual US nor its affiliates or subsidiaries have managed or co-managed a public offering of securities for the company.

20. Neither BTG Pactual US nor its affiliates or subsidiaries engaged in market making activities in the subject company’s securities at the time this research was report was published.

21. BTG Pactual US or its affiliates or subsidiaries have not received compensation for investment banking services from the companies in the past 12 months.

22. BTG Pactual US or its affiliates or subsidiaries do not expect to receive or intends to seek compensation for investment banking services from the companies within the next 3 months.


Avianca Holdings

Source: BTG Pactual and Economatica. Prices as of 07 January 2014

Cementos Argos


COPEC


BuyNeutral

SellNo Rating

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Stock Price (US$) Price Target (US$)

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Stock Price (CLP) Price Target (CLP)


Credicorp


Grana y Montero


BuyNeutral

SellNo Rating

0.0

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Global Disclaimer

This report has been prepared by BTG Pactual US Capital LLC (“BTG Pactual US,”), a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority and the Securities Investor Protection Corporation, and BTG Pactual US is distributing this report in the United States. BTG Pactual US is an affiliate of Banco BTG Pactual S.A, a Brazilian regulated bank. BTG Pactual US assumes responsibility for this research for purposes of U.S. law. Any U.S. person receiving this report and wishing to effect any transaction in a security discussed in this report should do so with BTG Pactual US at 212-293-4600, 601 Lexington Ave. 57th Floor, New York, NY 10022.

This report is being distributed in the United Kingdom and elsewhere in the European Economic Area (“EEA”) by BTG Pactual Europe LLP (“BTG Pactual UK”), which is authorized and regulated by the Financial Services Authority of the United Kingdom. This report may also be distributed in the United Kingdom and elsewhere in the EEA by BTG Pactual S.A. and/or BTG Pactual US. BTG Pactual UK has not: (i) produced this report, (ii) substantially altered its contents, (iii) changed the direction of the recommendation, or (iv) disseminated this report prior to its issue by BTG Pactual US. BTG Pactual UK does not distribute summaries of research produced by BTG Pactual US.

BTG Pactual Chile S.A. Corredores de Bolsa (“BTG Pactual Chile”), formerly known as Celfin Capital S.A. Corredores de Bolsa, a Chilean broker dealer registered with Superintendencia Valores Y Seguros (SVS) in Chile and responsible for the distribution of this report in Chile and BTG Pactual Perú S.A. Sociedad Agente de Bolsa (“BTG Pactual Peru”), formerly known as Celfin Capital S.A. Sociedad Agente e Bolsa, registered with Superintendencia de Mercado de Valores (SMV) of Peru is responsible for the distribution of this report in Peru. BTG Pactual Chile and BTG Pactual Peru acquisition by BTG Pactual S.A. was approved by the Brazilian Central Bank on November 14th, 2012.

BTG Pactual S.A. Comisionista de Bolsa (“BTG Pactual Colombia”) formerly known as Bolsa y Renta S.A. Comisionista de Bolsa, is a Colombian broker dealer register with the Superintendencia Financeira de Colombia. BTG Pactual Colombia acquisition by BTG Pactual S.A. was approved by Brazilian Central Bank on December 21st, 2012.

References herein to BTG Pactual include Banco BTG Pactual S.A., BTG Pactual US Capital LLC and BTG Pactual UK, as applicable.

This report is for distribution only under such circumstances as may be permitted by applicable law. This report is not directed at you if BTG Pactual is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that BTG Pactual is permitted to provide research material concerning investments to you under relevant legislation and regulations.

Nothing in this report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. It is published solely for information purposes, it does not constitute an advertisement and is not to be construed as a solicitation, offer, invitation or inducement to buy or sell any securities or related financial instruments in any jurisdiction. Prices in this report are believed to be reliable as of the date on which this report was issued and are derived from one or more of the following: (i) sources as expressly specified alongside the relevant data; (ii) the quoted price on the main regulated market for the security in question; (iii) other public sources believed to be reliable; or (iv) BTG Pactual 's proprietary data or data available to BTG Pactual. All other information herein is believed to be reliable as of the date on which this report was issued and has been obtained from public sources believed to be reliable. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, except with respect to information concerning Banco BTG Pactual S.A., its subsidiaries and affiliates, nor is it intended to be a complete statement or summary of the securities, markets or developments referred to in the report. In all cases, investors should conduct their own investigation and analysis of such information before taking or omitting to take any action in relation to securities or markets that are analyzed in this report.

BTG Pactual does not undertake that investors will obtain profits, nor will it share with investors any investment profits nor accept any liability for any investment losses. Investments involve risks and investors should exercise prudence in making their investment decisions. BTG Pactual accepts no fiduciary duties to recipients of this report and in communicating this report is not acting in a fiduciary capacity. The report should not be regarded by recipients as a substitute for the exercise of their own judgment. Opinions, estimates, and projections expressed herein constitute the current judgment of the analyst responsible for the substance of this report as of the date on which the report was issued and are therefore subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of BTG Pactual as a result of using different assumptions and criteria. Because the personal views of analysts may differ from one another, Banco BTG Pactual S.A., its subsidiaries and affiliates may have issued or may issue reports that are inconsistent with, and/or reach different conclusions from, the information presented herein. Any such opinions, estimates, and projections must not be construed as a representation that the matters referred to therein will occur. Prices and availability of financial instruments are indicative only and subject to change without notice.

Research will initiate, update and cease coverage solely at the discretion of BTG Pactual Investment Bank Research Management. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing and interpreting market information. BTG Pactual is under no obligation to update or keep current the information contained herein, except when terminating coverage of the companies discussed in the report. BTG Pactual relies on information barriers to control the flow of information contained in one or more areas within BTG Pactual, into other areas, units, groups or affiliates of BTG Pactual. The compensation of the analyst who prepared this report is determined by research management and senior management (not including investment banking). Analyst compensation is not based on investment banking revenues, however, compensation may relate to the revenues of BTG Pactual Investment Bank as a whole, of which investment banking, sales and trading are a part.

The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors, and trading in these instruments is considered risky. Mortgage and asset-backed securities may involve a high degree of risk and may be highly volatile in response to fluctuations in interest rates and other market conditions. Past performance is not necessarily indicative of future results. If a financial instrument is denominated in a currency other than an investor’s currency, a change in rates of exchange may adversely affect the value or price of or the income derived from any security or related instrument mentioned in this report, and the reader of this report assumes any currency risk.

This report does not take into account the investment objectives, financial situation or particular needs of any particular investor. Investors should obtain independent financial advice based on their own particular circumstances before making an investment decision on the basis of the information contained herein. For investment advice, trade execution or other enquiries, clients should contact their local sales representative. Neither BTG Pactual nor any of its affiliates, nor any of their respective directors, employees or agents, accepts any liability for any loss or damage arising out of the use of all or any part of this report. Notwithstanding any other statement in this report, BTG Pactual UK does not seek to exclude or restrict any duty or liability that it may have to a client under the “regulatory system” in the UK (as such term is defined in the rules of the Financial Services Authority).

Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments. There is no representation that any transaction can or could have been effected at those prices and any prices do not necessarily reflect BTG Pactual internal books and records or theoretical model-based valuations and may be based on certain assumptions. Different assumptions, by BTG Pactual S.A., BTG Pactual US, BTG Pactual UK, BTG Pactual Chile and BTG Pactual Peru and Bolsa y Renta S.A. or any other source, may yield substantially different results.

This report may not be reproduced or redistributed to any other person, in whole or in part, for any purpose, without the prior written consent of BTG Pactual and BTG Pactual accepts no liability whatsoever for the actions of third parties in this respect.

Additional information relating to the financial instruments discussed in this report is available upon request.

BTG Pactual and its affiliates have in place arrangements to manage conflicts of interest that may arise between them and their respective clients and among their different clients. BTG Pactual and its affiliates are involved in a full range of financial and related services including banking, investment banking and the provision of investment services. As such, any of BTG Pactual or its affiliates may have a material interest or a conflict of interest in any services provided to clients by BTG Pactual or such affiliate. Business areas within BTG Pactual and among its affiliates operate independently of each other and restrict access by the particular individual(s) responsible for handling client affairs to certain areas of information where this is necessary in order to manage conflicts of interest or material interests.

Any of BTG Pactual and its affiliates may: (a) have disclosed this report to companies that are analyzed herein and subsequently amended this report prior to publication; (b) give investment advice or provide other services to another person about or concerning any securities that are discussed in this report, which advice may not necessarily be consistent with or similar to the information in this report; (c) trade (or have traded) for its own account (or for or on behalf of clients), have either a long or short position in the securities that are discussed in this report (and may buy or sell such securities), with the securities that are discussed in this report; and/or (d) buy and sell units in a collective investment scheme where it is the trustee or operator (or an adviser) to the scheme, which units may reference securities that are discussed in this report.

United Kingdom and EEA: Where this report is disseminated in the United Kingdom or elsewhere in the EEA by BTG Pactual UK, this report is issued by BTG Pactual UK only to, and is directed by BTG Pactual UK only at, persons who are professional clients or eligible counterparties, each as defined in the rules of the Financial Services Authority (together, referred to as “relevant persons”).

Where this report is disseminated in the UK by BTG Pactual, this report is issued only to and directed only at persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the "Financial Promotion Order"), (ii) are persons falling within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc") of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as "relevant persons").

This report is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this report relates is available only to relevant persons and will be engaged in only with relevant persons.

Dubai: This research report does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe for or purchase, any securities or investment products in the UAE (including the Dubai International Financial Centre) and accordingly should not be construed as such. Furthermore, this information is being made available on the basis that the recipient acknowledges and understands that the entities and securities to which it may relate have not been approved, licensed by or registered with the UAE Central Bank, Emirates Securities and Commodities Authority or the Dubai Financial Services Authority or any other relevant licensing authority or governmental agency in the UAE. The content of this report has not been approved by or filed with the UAE Central Bank or Dubai Financial Services Authority.

United Arab Emirates Residents: This research report, and the information contained herein, does not constitute, and is not intended to constitute, a public offer of securities in the United Arab Emirates and accordingly should not be construed as such. The securities are only being offered to a limited number of sophisticated investors in the UAE who (a) are willing and able to conduct an


independent investigation of the risks involved in an investment in such securities, and (b) upon their specific request. The securities have not been approved by or licensed or registered with the UAE Central Bank or any other relevant licensing authorities or governmental agencies in the UAE. This research report is for the use of the named addressee only and should not be given or shown to any other person (other than employees, agents or consultants in connection with the addressee's consideration thereof). No transaction will be concluded in the UAE and any enquiries regarding the securities should be made with BTG Pactual CTVM S.A. at +55 11 3383-2638, Avenida Brigadeiro Faria Lima, 3477, 14th floor, São Paulo, SP, Brazil, 04538-133.

0701 andean latam

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